(Agrimoney) – Corn futures soared to a one-year high, with soybeans rising strongly too, after the US made bigger-than-expected cuts to estimates for its supplies and, including wheat too, added $5bn to its forecasts for the value of this year’s harvests.
The US Department of Agriculture, in its monthly Wasde crop report, cut by nearly 100m bushels, to 1.78bn bushels, its estimate for domestic corn stocks at the close of 2014-15, which ends next month.
The downgrade exceeded the 65m-bushel cut that investors had expected.
For soybeans too, the USDA reduced its end-stocks estimate for this season by more than the 47m tonnes expected – reducing it by 75m bushels to 255m bushels.
Traders caught out
The run of lower-than-forecast inventory data did carry through into 2015-16 estimates, with expectations for both corn and soybean stocks at the close of next season coming in ahead of forecasts.
Indeed, the initial market reaction to the Wasde was to send both corn and soybean futures sharply lower.
However, prices rebounded to intraday highs once investors appreciated that the USDA had not in its 2015-16 reduced its corn and soybean production forecasts – downgrades many investors see as inevitable given the heavy rains which have prevented some soy sowings and flooded out some crop that was seeded.
Running into the Wasde, most investors had expected the USDA to cut its yield forecasts for both crops, although the department has a rich history of avoiding yield revisions so early in the growing season.
Prices rise
Corn futures for December, the best-traded contract, recovered to $4.49 a bushel some 40 minutes after the report was released, the contract’s highest since June last year, before easing back to $4.45 ¼ a bushel a gain of 1.4% on the day.
Soybeans for November touched $10.36 ¾ a bushel, 3.25 cents from an eight-month top, before retreating to $10.29 ½ a bushel, a gain of 1.4%.
Wheat – for which the Wasde was not so supportive, seeing a massive upgrade to the estimate for world supplies – was nonetheless helped higher by the row crops, standing 0.7% higher at $5.82 ¼ a bushel for September delivery.
Extra $5bn for farmers
The USDA raised its estimate for farmgate prices of all three crops for 2015-16, including an upgrade of $0.35 a bushel to $4.75-5.75 a bushel in the forecast for values of wheat, “on recently high cash and futures prices and the rising outlook for corn prices, particularly in the summer months when a majority of this year’s wheat crop will be marketed”.
The upgrade added more than $750m to the value of the ongoing US wheat harvest.
For corn, the USDA lifted its estimate for farmgate prices next season by $0.25 a bushel to $3.45-4.05 a bushel, equivalent to an extra $3.4bn in value.
The soybean price estimate was upgraded by $0.25 a bushel to $8.50-10.00 a bushel, handing an extra $970m to growers.
Extra demand
The bigger-than-expected downgrades to corn and soybean inventory forecasts for 2014-15 reflected upgraded idea of both domestic consumption and exports, after snapshot inventory data last week showed stocks smaller than the market had expected.
For corn, “increases in feed and residual use, use in ethanol production, and exports more than offset a small increase in exports”, the USDA said.
For soybeans, the estimate for the US crush this season was raised by 15m bushels to 1.83bn bushels “on increased domestic soymeal use.
“Soybean exports are projected at 1.825bn bushels, up 15m, reflecting shipments and outstanding sales through early July.”
The USDA also for soybeans raised the estimate for the so-called “residual use” by 44m bushels to 82m bushels.
The residual category is in fact seen largely as an indicator of a potential discrepancy in the estimate for the previous year’s harvest, with many believing that the estimate for 2014 production was overstated.
